Month: April 2010

Given the vast array of financial issues facing the Obama Administration, legalizing online gambling as a means to levy new government income is probably low of the list. The question is, however, is it “low” as in the very bottom, or “low” as in on the radar in the minds of government officials, looking for a convenient moment to overturn UIGEA?

According to a British firm, H2 Gambling Capital, legalized online gambling could create up to 32,000 jobs, plus an estimated $57.5 Billion in additional tax revenues over a 5 year period. No, we didn’t make a typo: that’s $57.5 billion in cold hard cash that is desperately needed by the USA government, already troubled with a staggering budget deficit. For more on the H2 Gambling Capital Article – Click Here.

In fact, online gaming does have a few friends in high places. Barney Frank, D-Massachusetts and Chair of the House Banking Committee, is currently one of the most outspoken proponents of legalized online gambling. His bill, HR2267, is an attempt to craft new legislation that would literally open the floodgates in terms of new jobs and high technology industry. Meanwhile, fellow congressman Jim McDermott is putting together a complementary bill that would allow the government to tax online gaming, thereby creating the $50 billion or so in new income estimated by the H2 Capital Group.

The question is, what kind of coalition would be needed in order to get such legislation moving, and most importantly, ultimately made into law? From our perspective, the most important constituency for a push towards legalized gambling would be President Obama and other Executive Branch officials. Per the Constitution, the President must sign any and all new legislation into law, and it stands to reason that starting with Obama and working backwards towards the legislative arm of the government might be the way to go. Once the Administration is on board, the real battleground would be in the Congress.

Many have been leaning on both the House and Senate financial committees for new ideas that could make the government money; and it stands to reason that members of these committees would be open to considering legalized online gaming. It’s likely that Frank could get the initial legislation written, through his committee, and onto the floor of the House without too many issues. Once out of committee, however, Frank and other leaders would have to make a lot of phone calls to get fellow Democrats on board, not to mention a few moderate Republicans who are pro-business, but also pro-Federal government.

Given the current makeup of the Senate and House, it wouldn’t be hard to move online gambling legislation through. The devil is in the details, however, and the most important detail would be the timing of such legislation. If the Democrats have a rough time in November 2010 during the mid-term elections, pro online gambling groups might find it more difficult to get new lawmakers on board, especially if those new lawmakers are hard and fast Republicans, championing family values and laissez faire economic policies. Moreover, Frank would have to maintain his seat in the House and not get bounced out by a conservative backlash in Massachusetts, which isn’t a remote possibility given the fact that Republican Scott Brown landed Ted Kennedy’s old senate seat.

In sum total, it’s hard to turn away the thought of $57.5 Billion in new revenues. This money is sorely needed, to say the least. The trick would be garnering support from the public and President Obama, and making it a priority to pass new online gaming law as soon as possible. That means it would most certainly have to move up “The List” of possible new revenue streams in short order.

If and when HR2267 is passed, the online gaming industry would be a new Goliath, with the likes of many land based casino operations jumping into the market right away. As a result, offshore casinos would either have to adapt or die, since it would be tough for even the savviest of non-USA online gambling operations to compete against behemoths like Harrah’s, Wynn Resorts, or Foxwoods.

In the meantime, if you believe legalized online gaming is good idea, drop your Congressperson a line. Every little bit helps, and politicians almost ALWAYS want to do what their constituents want in order to get elected again.

During tough economic times, society tends to look towards levying “sin taxes” in order to provide revenue for the government. In most cases, the only way to create this extra revenue is by legalizing vice activities. For example, California is considering legalizing Marijuana in order to provide funds to the cash starved state treasury. So, this begs the following question: if these activities were legal, would you be more likely to enjoy them, given that you couldn’t be prosecuted or arrested? Would you be more likely to play at an online casino if it was licensed, taxed, and regulated by the USA government?

It’s a well known fact that Americans love to gamble online. Profits from USA based players soar into the billions of dollars each year, despite the fact that most government agencies regard online gambling in the USA as illegal. All the same, people still flock to online gambling sites, both sport and casino, regardless of murky USA law. As a result, many offshore gaming operations have built substantial businesses taking “somewhat” illegal bets from USA players. The gaming company owners dodge legal issues by forming shell companies, using offshore banking, or incorporating in places where online gaming is legal like Malta, Costa Rica, Cyprus, or Antigua.

What would happen if the USA legalized online gaming? Would taxing these offshore operations and/or regulating them encourage more people to gamble online? The short answer is “yes”. It stands to reason that there are many American gamblers who would love to begin gambling online, but have avoided doing so because of legality issues. A sudden influx of new “legal” USA online gamblers would almost certainly strengthen the internet gaming market, perhaps adding billions of dollars in additional annual revenues.

The long answer is a bit more complicated. There is a 900 pound gorilla lurking in the room, and that’s the land based casino industry. If the USA legalized online gaming, many top companies and businessmen like Steve Wynn, Harrah’s, the Kerzner company, and a host of others would pounce on the opportunity to break into a fresh market. Any backlash from such a development would land squarely on offshore gaming companies that can’t afford to compete with big land based gaming companies. In effect, legalizing USA online gambling would almost certainly squeeze out “Mom and Pop” offshore online gambling businesses, leaving only those that have substantial budgets and customer bases.

This might actually be a good thing if you look at the big picture. USA customers would feel much more comfortable gambling at websites created by well established USA gaming companies; and any bad apples in the offshore gaming bunch would disappear. Further, players could enjoy some new levels of certainty in terms of payment processing, customer service, and payouts. Instead of waiting 2 weeks for a jackpot payout from an offshore gaming operation, land based casino companies sporting new websites could pay players almost immediately. Slowly but surely, the reservoir of eager gamblers that once fed offshore gaming enterprise would dry out in favor of USA companies whose reputation and legality are not a matter of question.

To take it a step further, the government would make more money, there would be new employment opportunities, and players that were once vulnerable to shady offshore gaming operators would have some legal protection under any sort of new online gaming legislation. The industry itself would lose its current “Wild West” identity and slowly move towards a stable corporate image. It’s a virtual Win-Win for all parties, except for offshore gaming companies that are too small, too crooked, or unwilling to hand over taxes to the USA government.

So if online casinos and sportsbooks were legalized in the USA, would you start/continue placing bets online? The answer, yet again, is a near certain “yes”. In reality, no one in the USA cares about some sketchy casino operation somewhere in the Caribbean dying. Gamblers will always find a way to gamble. Most importantly, a favorable legal climate that opens the door to land based gaming operations would only have a few insignificant casualties: offshore casino/sportsbook operations that can’t make the grade. For once, it might be truly “safe” to gamble online, and that would be a good thing for almost everyone.